David Iben put it well when he said, ‘Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.’ So it seems the smart money knows that debt – which is usually involved in bankruptcies – is a very important factor, when you assess how risky a company is. We note that Ekso Bionics Holdings, Inc. (NASDAQ:EKSO) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.
When Is Debt A Problem?
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can’t fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Having said that, the most common situation is where a company manages its debt reasonably well – and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.
What Is Ekso Bionics Holdings’s Debt?
As you can see below, Ekso Bionics Holdings had US$3.87m of debt at June 2019, down from US$6.15m a year prior. But it also has US$13.3m in cash to offset that, meaning it has US$9.39m net cash.
How Healthy Is Ekso Bionics Holdings’s Balance Sheet?
We can see from the most recent balance sheet that Ekso Bionics Holdings had liabilities of US$9.34m falling due within a year, and liabilities of US$10.8m due beyond that. Offsetting these obligations, it had cash of US$13.3m as well as receivables valued at US$4.54m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$2.38m.
Since publicly traded Ekso Bionics Holdings shares are worth a total of US$67.3m, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. While it does have liabilities worth noting, Ekso Bionics Holdings also has more cash than debt, so we’re pretty confident it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Ekso Bionics Holdings’s ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.
Over 12 months, Ekso Bionics Holdings reported revenue of US$13m, which is a gain of 33%. Shareholders probably have their fingers crossed that it can grow its way to profits.
So How Risky Is Ekso Bionics Holdings?
We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months Ekso Bionics Holdings lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$19m of cash and made a loss of US$21m. Given it only has net cash of US$13m, the company may need to raise more capital if it doesn’t reach break-even soon. Ekso Bionics Holdings’s revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. For riskier companies like Ekso Bionics Holdings I always like to keep an eye on whether insiders are buying or selling. So click here if you want to find out for yourself.
At the end of the day, it’s often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It’s free.
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If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.